On the day that the long-awaited spot Ethereum (ETH) exchange-traded fund (ETF) launched in the United States, the market reaction was unexpectedly muted. Analysts at Singapore-based crypto asset trading firm QCP Capital have explained the reason for the muted reaction, pointing to previous market behavior and other news from the broader market as the reasons for the situation.
Why Ethereum Price Isn’t Soaring
QCP Capital notes in an investor note that the market may be stuck in a “buy on hype, sell on news” pattern similar to the US spot Bitcoin ETF launch scenario. When the spot Bitcoin ETF debuted on January 11 this year, the Bitcoin price surged ahead of the launch, but later fell to $38,000, recording a -21% drop in the first 12 days after the launch.
This price action was largely driven by outflows from the Grayscale Bitcoin ETF, which was converted from the GBTC Trust, allowing investors to withdraw their holdings for the first time in years. A similar scenario could be in store for ETH, but with a key difference: Grayscale has launched a “Mini ETF.”
As a reminder, Bitcoin has since hit a new all-time high in the past two months. Therefore, QCP suggests that investors are cautious and waiting for further developments before making any major moves in the ETH market.
Additionally, general market sentiment, which is heavily influenced by Bitcoin movements, can also play a role. In particular, the US government and Mt. Gox’s Bitcoin transfers have created ripple effects that have affected the dynamics of the entire cryptocurrency market.
This morning, the US government transferred 58,742 BTC to Coinbase, but still held 213,239 BTC worth about $14.2 billion. At the same time, Mt. Gox transferred about 47,600 BTC to various wallets, including 5,110 BTC ($340.1 million) to Bitstamp. These large movements could contribute to the market’s cautious stance.
While the spot price of Ethereum is flat, the options market is seeing some notable activity. QCP observed an impressive 8-ball rally in volatility on July 26, with the risk reversal (RR) dropping to 3-ball. This indicates increased caution regarding a potential downside move. The divergence between the spot and options markets suggests that traders may be bracing for further price declines in the short term.
QCP noted that “the options market seems to be expecting further downside in the short term due to the US government and Mt Gox news.”
Given the current situation, QCP Capital suggests that Ethereum prices may be depressed in the short term. The firm highlights potential BTC selling pressure from the US government and Mt Gox as key factors that could indirectly prevent ETH price increases.
Also, since the impact of the ETH Spot ETF has not yet been reflected in the market, traders are probably waiting for more momentum to build ahead of the US elections. “It is possible that the ETH Spot ETF will not initially have an impact on price, and momentum could build along with potential selling pressure from the US government and Mt Gox, which could dampen prices ahead of the elections,” QCP’s investor note concluded.
At the time of writing, ETH was trading at $3,513, up 0.5% over the last 24 hours.
Source: NewsBTC.com